Your Power of Attorney is the unsung hero of your estate plan.   A Power of Attorney appoints someone (an “attorney-in-fact”) to make financial decisions if the maker (the “principal”) becomes incapacitated.   But most people pay little attention to the terms of their Power of Attorney, focusing instead on the documents that get top billing in an estate plan, like their Will and Trust.  However, many people will suffer some period of incapacity prior to death.  It is during this time that a well drafted Power of Attorney is crucial.  As you age, your estate and long-term care planning begin to intersect.  A Power of Attorney drafted 10 or 20 years ago for the purpose of making sure your spouse can pay your bills and file your income tax returns is not sufficient to allow your spouse to deal with assets you may now own, take steps to ensure your estate plan will operate as intended, or preserve your assets should you need long-term care.

Here are five crucial things a good Power of Attorney will address:

1. Real Estate Transactions. Most Powers of Attorney will allow the attorney-in-fact to sell real estate and sign deeds, but this “power” contemplates an arm’s length sale to a third party.  Long-term care planning often requires changing the ownership of real estate from joint names into one spouse’s individual name.  Although a Power of Attorney may include a general power to sign deeds, if one spouse needs to transfer jointly owned property into her own name using her spouse’s Power of Attorney, the transfer will not be considered valid from a title perspective unless the Power of Attorney includes a provision specifically authorizing “self-dealing” — the ability of the attorney-in-fact to take actions that may benefit herself, even if she is acting in the principal’s best interest.  If the problem is discovered before the deed is recorded, a conservatorship proceeding can be brought in the probate court to obtain authorization for the transfer.  This is costly and will delay the timing of the transfer.  Further, there is no guaranty that the court will grant the request.   If the problem with the Power of Attorney is not recognized before the transfer is recorded with the registry of deeds, a title issue may arise when the property is sold.

2. Estate Planning Powers.   The laws, especially the tax laws, change frequently.  In addition, family situations change over time.  For example, a child may become disabled, pass away, or become involved in a nasty divorce or lawsuit.  These are circumstances that merit a review and update of an estate plan.  If you are unable to undertake those updates because of incapacity, a Power of Attorney that specifically authorizes your attorney-in-fact to update estate plan documents can ensure your plan will continue to operate as intended. A Power of Attorney may also allow your attorney-in-fact to make gifts of your assets, if necessary, for estate planning, long-term care planning, or income or estate tax planning reasons.  Without specific provisions in the Power of Attorney authorizing such actions, family members are faced with seeking authority from the probate court to do so.

3. Life Insurance, Annuities, and Retirement Accounts – A general power to deal with your bank and investment accounts will not be sufficient to allow your attorney-in-fact to deal with institutions in which you have other types of accounts. If you are incapacitated, it may be necessary to change the ownership of a life insurance policy or make an inquiry concerning the beneficiary designation or cash value of a policy.  It may also be necessary to transfer or surrender an annuity, or to annuitize the annuity contract.  If you are over age 70½, each year it will be necessary to direct the custodian to make minimum required distributions to you from your IRA, or request the distribution of additional funds if necessary.  All of these actions require specific provisions in your Power of Attorney.

4. Digital Assets – Many of us now have online accounts. Some of these accounts are just online extensions of bank accounts that have been opened at a local bank. Others reside only online. If you become incapacitated, your family may be unable to access your online accounts unless you have authorized your attorney-in-fact to do so in your Power of Attorney.  A well drafted Power of Attorney will authorize your attorney-in-fact to access your digital assets as needed to assist you.

5. Naming Successors – We often see Powers of Attorney that name a spouse or other responsible adult as attorney-in-fact, but either do not name a successor attorney-in-fact, or name someone who is no longer able, or appropriate, to serve. Because of this, it is important to create a Power of Attorney that names one or more people to serve, in succession, to act for you if the previously named person is unable, and to review and update the document as needed.

If it has been more than five years since you have reviewed your Power of Attorney with your estate planning attorney, or if you don’t currently have a Power of Attorney, meet with an experienced estate planning attorney to create a Power of Attorney tailored to your circumstances.  If you are concerned with long-term care planning, it is best to have your Power of Attorney prepared by an attorney who is also experienced with elder law matters and familiar with the types of powers necessary to protect you as you age and allow for long-term care planning as appropriate.

Attorney Maria Baler is an estate planning and elder law attorney and a partner with the Dedham law firm of Samuel, Sayward & Baler LLC. She is also a director of the Massachusetts Chapter of the National Academy of Elder Law Attorneys (MassNAELA). For more information, visit www.ssbllc.com or call (781) 461-1020.  This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney.

August 2015